State government as an anchor industry

Eds and Meds . . .  and Capitol Domes?

I recently participated as a part of an expert panel reviewed Sacramento’s economic development strategy. You can learn more about the city’s “Project Prosper” here.  It is rightly focused on identifying what can be do to promote economic growth with inclusion.

Like most regions, Sacramento has a strong interest in developing a more diverse, knowledge-driven economy. Although it’s only about 100 miles from tech centers in San Francisco and San Jose, the region has a much smaller innovation and entrepreneurship sector. What shows up clearly in an economic base analysis–which measures industry specialization using location quotients–is that as the Golden State’s capital, Sacramento has a disproportionate number of state government employees. While it’s understandable that one might want to move beyond that established base, it’s good strategic advice to build on your assets. So how could Sacramento do more to turn state government into a key component of its economic strategy?

State Government as an anchor institution

One recurring theme in economic development is that cities ought to tap into so-called “anchor institutions” like universities and hospitals, to promote entrepreneurship and job development. An “Eds and Meds” strategy, can promote economic opportunity, particularly in adjacent neighborhoods, and can be a way of reaching underserved populations.

In that vein, maybe it’s time for urban economic developers to add state capitals to the the “Eds and Meds” list of anchor institutions.  Like hospitals and universities, state capitals are large, place-based and relatively stable employers with large procurement budgets.

On its face, making state government part of an economic strategy seems to contradict one of the fundamental tenets of economic development: that one ought to focus on what we call “traded sectors” of the economy:  businesses that compete in national or international markets, and who by doing so successfully generate new income that gets re-spent in the local economy.

A key insight behind this principle is that, in general, it’s difficult for the local-serving sectors of the economy to grow any faster than local population and income.  The local-serving sectors–things like grocery stores, retail banks, dry-cleaners, plumbers, hairdressers, and the lik–sell all or nearly all of their goods and services to the local population. If you want to grow your economy, you will usually get much more impact from boosting traded sector firms.

In general, state and local government gets classified as part of this local-serving sector of the economy.  Police, fire, schools, transit and other public services are generally driven, like retail and service businesses, by the size of the local population. For that reason, we generally don’t think about government being a traded sector industry.

But economic strategies should recognize an area’s particular strengths, and also address inclusion as well as growth. In particular,  if we’re concerned about promoting inclusion creating pathways for local residents to work in occupations that we can be confident will still be  in the area two or three decades from now, there are good reasons to focus on state government.

State government as a target industry

If you think about the kinds of criteria that economic developers use to choose target industries, for capital cities, the state government sector seems like one you would choose. In general, economic strategies target industries that have lots of jobs, that have a strong reason to be in a particular region, that are growing, that pay well, and that bring new money into the community. State government jobs do all these things in the Sacramento economy.

First, state government is a large employer in Sacramento.  According to the latest American Community Survey tabulations, roughly 130,000 state employees live in the Sacramento metropolitan area.

Second, the city’s position as state capital constitutes a defensible competitive advantage. Sacramento doesn’t face direct competition from other California cities to be the capital.  

Third, state government employment in California is a growth industry.  As the California population and economy grows, so too does the overall size of state government.  While it’s not recession-proof (state budget shortfalls hamstring hiring and state job growth), it has expanded even as other sectors of the economy like manufacturing, have declined.  Here’s Sacramento’s state job growth record:

Regardless of its exact connection to the macro-economy, Sacramento has a strong interest in a healthy, well-managed state government. Working out a resolution to the state’s long term fiscal challenges–such as meeting future pension costs–will affect the local economy, just as much as restructuring in a more traditional basic sector industry.

Moreover, thanks to the demographics of state government employment, there are likely to be a fair number of job openings in Sacramento in the next few years. According to the American Community Survey, about 30 percent of state government employees in the region are 55 or older, meaning most will qualify for retirement within a decade.  This could produce more than 40,000 job openings in Sacramento, even if total state employment remains flat.

Fourth, state jobs pay well.  According to data from the Bureau of Labor Statistics, the average weekly wage of state government jobs in Sacramento was about 60 percent higher than the average weekly wage for all private sector jobs in the region.

Fifth, even though it doesn’t fit the usual profile of a traded sector industry, as far as the Sacramento metropolitan economy is concerned, state government plays a similar role–it imports money (chiefly tax revenue) from the rest of California, which is then spent in the form of salaries and purchases in metropolitan Sacramento.  

So, to summarize:  state government jobs in Sacramento fit all the criteria one would apply in choosing a targeted industrial sector:  it’s a large industry, it pays well, it’s growing, the city has a defensible competitive advantage, and it’s bringing new money into the regional economy.

Just as with other anchor institutions, one of the keys may be brokering a stronger relationship between the city government and the institution in question. As Richard Florida has pointed out, the success of an “Eds” strategy hinges on bridging the town/gown divide and transforming what can be an often contentious or transaction relationship into a long-term mutually beneficial partnership.

Achieving inclusion

Like most cities, Sacramento has identified the challenge of promoting greater inclusion:  How do we help low income populations and communities of color to achieve greater economic opportunity? One of the critical challenges in many traded sector industries is that, in order to compete in global markets, firms need to have highly skilled and educated workers. For example, innovative software and biotechnology thrive or fall based on their ability to hire workers with years of advanced education and experience in these fields, and these firms tend to recruit from national and global talent pools. That makes them poor candidates for hiring lots of entry level workers with modest educational credentials.

State government is more like Eds and Meds.  While some of the jobs require an advanced education and credentials (teachers, doctors), others offer pathways from entry level jobs to long term employment and in some cases more demanding careers (as in nurse’s assistant, to LPN to RN).  

As with Eds and Meds, the challenge may be to create entry points and pathways for local Sacramento residents to learn about and prepare for potential state government jobs. Do elementary and high schools have career awareness and job shadowing programs or partnerships that include state agencies? Do these agencies participate in the  region’s internship programs for high school and college students?

The essence of strategy is recognizing the unique characteristics of your particular situation and capitalizing on distinctive differences. For a state capital city like Sacramento, and particularly in a large and robust state like California, state government jobs are, and will continue to be an important cornerstone of the economy. Figuring out how to leverage this resource to the region’s advantage will be time and energy well spent.

Fishy business: the promise and perils of city aquariums

To ballparks, convention centers and starchitect museums, add urban aquariums.

To some boosters, your city is only one world-class visitor attraction away from economic prosperity. That pitch has been used to sell and endless series of public subsidies for baseball parks, football stadiums, basketball and hockey arenas, convention centers (and their appurtenant “headquarters hotels”) and starchitect-designed museum buildings. To that long list, we might add aquariums.

To be sure, there are many breath-taking and well-patronized aquariums around the country. They include established institutions like the Shedd Aquarium in Chicago, San Francisco’s Steinhart Aquarium and New York City’s Municipal Aquarium.  There are splendid new aquariums like the Monterey Bay Aquarium in California, and Atlanta’s Georgia Aquarium.

There have been many new aquariums opened in the US over the last two decades with the hopes of attracting visitors and stimulating city economies. According to the Association of Zoos and Aquariums there are 52 certified aquariums in the US (and another 8 aquariums that are part of larger zoos). And even more may be in the offing. One of the latest proposals has surfaced in Detroit. Boosters in the Motor City have resurrected long dormant plans to build a large aquarium in downtown. It’s worth asking:  Would an aquarium be a municipal asset and visitor attraction for your city?


Caveat emptor:  “The shark is in the park” (from the 1984 film Jaws 3)

Financial risks abound in the aquarium business

As our grinning friend from the thoroughly forgettable third installment of the Jaws franchise reminds us, there are remorseless financial aspects to the aquarium business. For those who’ve been spared the pleasure, Jaws 3 is set in a Sea World aquarium in Florida that decides to try to exhibit a captured baby great white shark in its park; its mother–pictured above–has other ideas about her offspring’s housing arrangements.

The fact that they can work spectacularly well in some instances, doesn’t necessarily mean that every one will be a financial success or a material contributor to community economic development (which is not to gainsay the educational or amenity benefits of having such an institution in one’s community.)

There’s a classic joke about investing that seems like it should apply to financing aquariums: “The best way to make a small fortune in aquariums is to start with a large one.” There are a handful of big aquariums that have been financially steady, but these tend to have very generous charitable givers. Construction of the Monterey Bay Aquarium was underwritten substantially by donations from the Packard family (of Hewlett-Packard fame).  Home Depot’s founder gave $250 million to build the Georgia Aquarium, for example. Big equity contributions up-front mitigated the need to go into debt to create the facility.

Not everyone has such deep-pocketed donors to underwrite the cost of aquariums. It’s more common that local municipalities are asked to make a substantial up-front contribution to the cost of building a facility, and not unusual that cities end up shouldering ongoing operating costs as well as being the ultimate guarantor of debt. There’s a litany of communities that have started, supported, or subsidized local aquariums who have had very mixed financial results.

  • Tampa:  City ended getting up stuck repaying $84 million in debt issued for its aquarium.  It will be paying $7 million a year on the bonds, plus a half million in operating subsidy to the aquarium, plus it pays insurance bills for the facility of about $150,000 annually.
  • When Denver’s aquarium folded it stuck private debtors with $57 million in bad debt.  The facility was built at a cost of $93 million in 1999, but folded in 2005 and was sold in bankruptcy for $13 million.  It’s now owned and operated by the Landry Restaurant group.
  • Long Beach’s Aquarium of the Pacific has been heavily subsidized by the port and city of Long Beach (which uses revenue it gets from oil leases to pay subsidies).
  • Citibank had to write off $15 million in lent for the construction of an aquarium in Mystic, Connecticut when attendance failed to meet projections.
  • Gulfport, Mississippi is building a $93 million aquarium set to open in 2019; the City has issued $35 million in debt (for which it will be liable); the facility also got a $17 million federal grant (out of oil spill compensation funds).
  • Tulsa build an aquarium which got a $12 million grant from the city out of “Vision 2025” sales tax package, but since that has expired, the city is now responsible for ongoing debt.
  • Shreveport has a privately run aquarium in a city building that has had problems paying its bills.

Even the most successful aquariums have to cope with the “honeymoon” effect. Aquariums tend to do well when they open, but the blossom can quickly fade.  Atlanta’s Georgia Aquarium attracted 3.5 million visitors in the first year it was open, but attendance quickly fell to fewer than 2 million visitors per year, once the novelty had worn off. An article on the aquarium’s marketing efforts in the Harvard Business Review concluded that this is a regular occurance with aquariums. That then prompts efforts to invest in new exhibits and attractions that will give patrons a reason to come again. In the case of some aquariums, like Long Beach’s Aquarium of the Pacific, that means they are taking on additional debt for expansion at the same time they’re relying on increasing public subsidies to pay off old debt.

Investment Advice?

For cities looking at proposals to build aquariums, it would be great if there were some off-the-shelf, or industry-standard metrics for gauging the prospects and risks of the next city aquarium. Is this a growth industry? Is the market saturated? What does it take to compete? What are realistic assumptions about capital costs, and what does it take to have a facility that can keep the doors open without ongoing subsidies?

The industry is represented by the Association of Zoos and Aquariums which publishes some general information about the number, location and overall visitor counts of zoos and aquariums. There are also occasional prospective economic impact reports on the potential benefits of building aquaria–but they generally fall into the category we’ve called “hagiometry“–paid flattery with numbers. What seems to be lacking is the kind of careful comprehensive assessment of risks and a critical independent analysis of attendance projections and financial estimates, the kind of analysis that the University of Texas at San Antonio’s Heywood Sanders authored for the Brookings Institution on the economics of convention centers. In the absence of such information, we can only invoke the old advice: Caveat emptor.



California’s next bold step on climate should be building near transit

While the impetus for State Senator Scott Wiener’s proposed SB 827, which would allow apartment construction near transit lines was addressing housing affordability, the measure should also be a cornerstone of our efforts to tackle climate change.  

City Observatory is pleased to publish this guest commentary from Dan Jacobson, Director of Environment California.


Growing up in New York City in the 1970s, I watched neighbor after neighbor flee the city for the suburbs.

Even in California, where I’ve lived for the last two decades, there was a time not long ago when cities were on the down and out. San Francisco, for example, lost an eighth of its population between 1950 and 1980.

In those days, most of us didn’t know about global warming. And we certainly didn’t know that the exodus from our cities to a suburbia connected by highways and gas-guzzling vehicles was helping to fuel climate change.

In compact, walkable neighborhoods connected by transit, people can travel less every day – and do more of their travel without a car. The good news: these are neighborhoods people increasingly want to live in. The bad news: in part because so many people want to live there, they have become extraordinarily expensive.

Housing prices in many California cities have become unreachable for most of us. The median home price in San Francisco is now $1.5 million. Housing prices in Southern California have blown past their bubble-era peaks.

Because affordable housing is limited, the number of “supercommuters” traveling hours to and from work each day is on the rise – in Stockton, roughly one out of every 12 workers reports traveling 90 minutes or more to work each day. Stories of people sleeping in cars abound.

None of this is good for our environment. And the problem gets worse each year.

Photo by Conner Murphy on Unsplash

But we can solve it. And we can start by expanding the amount of housing available in neighborhoods near public transportation. A 2017 study by researchers at the University of California, Berkeley, estimated that “infill” housing built in neighborhoods already near transit could reduce greenhouse gas emissions by nearly 1.8 million metric tons per year by 2030.

Local opposition, however, often makes the addition of dense or multi-family housing to existing neighborhoods difficult. Long-time residents of a neighborhood may worry that new development will change the character of the place they love. Low-income residents may fear that new development will bring gentrification and displacement. Everyone thinks that new development in their neighborhood will make traffic worse, and that by blocking new housing they can avoid the problem.

Here’s the catch, though: as a result of those local objections, housing is not being built in the places where people want to live … which are exactly the places where we have the best chance to slash the number of miles we drive, the amount of gasoline we burn, and the climate-altering pollution we put into the atmosphere.  Ironically, the collective effect of everyone trying to reduce traffic in their neighborhood is to generate even more sprawl, increasing traffic and car dependency.

Solving these 21st century problems will require that we all value our larger collective self-interest above our more localized fears and desires. This will be true across the board – and we have to start somewhere. Why not at the intersection where two of our biggest problems converge?

SB 827 was one of the first pieces of legislation to deal with the linked challenges of climate and housing with the urgency the problems deserve, at a scale that just might work.

Despite its failure to become law, SB 827 catalyzed a statewide, and even national, debate. Now, it is up to all of us to come together behind solutions that can create places where every Californian – newcomer or old-timer, rich or poor – has the opportunity to live a low-carbon lifestyle in a neighborhood they love.   


This post has been updated to correct a typographical error.


Cities as selection environments

Being cheaper may not be an advantage at all in a dynamic, knowledge based economy

It’s axiomatic in the world of local economic development that the sure-fire way to stimulate growth is to make it as cheap and easy as possible to do business in your community. Area Development, a trade journal for industrial recruiters rates states every year.  They’re clear about their criteria:

What’s it take to be recognized as a top state for doing business?  . . . The overall cost of doing business is, of course, a primary consideration, one that encompasses a wide range of components, from real estate costs to utility rates to labor expenses.

So it’s a seeming paradox that some of the most expensive, highly regulated places are routinely the most entrepreneurial and innovative. Cities like New York and San Francisco have some of the most expensive rents, and their workers are highly paid. And yet, year in and year out, they generate many of the most creative and successful businesses.

In part, we suspect it’s because cities function as rigorous selection environments for businesses.  By selection environment, we mean that the characteristics of the city systematically favor some kinds of enterprises and disadvantage others. If you have a low margin, low growth business that’s sensitive to land costs or worker wages, you’ll likely find that its cripplingly expensive to do business in a San Francisco or New York. The only businesses that can survive in such a location are the ones that are innovating quickly enough to be able to afford to be there. You need to be highly profitable, or on a plausible track to generate profits in order to pay the bills. Businesses that can’t meet those tests don’t start there, are more likely to fail, or will move away. The result is that surviving businesses are likely strong competitors.

As Frank Sinatra told us in the the famous refrain from New York, New York:

If I can make it there, I’ll make it anywhere

The tough competition for market share, recognition, capital and talent in these cities means that, disproportionately, the strongest business concepts and capable management teams move forward. The press of competition also forces firms move quickly, lest they be left behind.

The converse is also true: low cost locations may insulate businesses from the need to innovate.  If rents are cheap, taxes are low, and labor is docile and low paid, there may be little reason to undertake the risk and expensive of new equipment investment, worker training, or research and development. Economists often speak of “the resource curse“–that an abundance of some valuable natural resource, like gold or oil, skews a local economy’s activity away from innovation and entrepreneurship.  In a sense, cheap housing and low business costs can be a kind of resource curse.

There’s an additional factor as well:  cheap housing tends to attract and retain low skilled workers. If you live in a place with low housing costs, you may find it too expensive to move to a place like New York and San Francisco–unless you have the kind of skills that will get you a job that pays enough to afford high rents. So workers may self-select as well–and as a result, employers in low cost housing markets will have a lower skilled labor force.

Selective factor disadvantages: What doesn’t kill you, makes you stronger

Economists tend to focus on the story of comparative advantage: that economies tend to grow and flourish in those industries to which their natural and human resources are most conducive, relative to other locations. But in some cases, as business strategist Michael Porter has pointed out, comparative disadvantages can prompt innovation.

What is not so obvious, however, is that selective disadvantages in the more basic factors can prod a company to innovate and upgrade—a disadvantage in a static model of competition can become an advantage in a dynamic one. When there is an ample supply of cheap raw materials or abundant labor, companies can simply rest on these advantages and often deploy them inefficiently. But when companies face a selective disadvantage, like high land costs, labor shortages, or the lack of local raw materials, they must innovate and upgrade to compete.

With a lack of coal and high cost electricity, Italian steelmakers were an absolute competitive disadvantage to British and German steelmakers. Their disadvantages forced them to innovate, and their highly efficient electric mini-mills made them a flexible, low cost producer.

The fact that some factor disadvantages can stimulate an adaptive response with an economic upside doesn’t mean that one should treat this observation as a universal rationalization for high business costs. The key word in Porter’s formulation is “selective.” That suggests that you need to look at business costs, and the business climate, in a more comprehensive and nuanced way than is presented in the usual index rankings compiled by Area Development and its ilk.

You can build a simple, static model of economic competition in which having the low cost always wins. But in a rapidly changing knowledge economy, the ability to continuously create new ideas, new products and new businesses is the key to success and being “dynamically efficient,” as Douglas North put it. Cities are the selection environment that gives rise to new businesses, and the cheapest location is unlikely to be the one that optimally selects robust competitors.

No exit from housing hell

Distrust and empowering everyone to equally be a NIMBY is a recipe for perpetual housing problems

The recent defeat of SB 827–California State Senator Scott Wiener’s bill that would have legalized apartment construction in area’s well served by transit–was the subject of a thoughtful post-mortem in the Los Angeles Times: “A major California housing bill failed after opposition from the low-income residents it aimed to help. Here’s how it went wrong.” Liam Dillon notes that while the bill had the strong support of YIMBY–yes in my back yard–housing advocates, it foundered because of the combined opposition of not only local governments and homeowners, but also the very people it was supposed to help:  low income renters.

Dillon points out the schism between the economic and political cases for the legislation. SB 827 may have been great economics, but it was poor politics. YIMBY’s and a wide range of urban and housing scholars supported the SB 827 approach, arguing that more housing, especially in transit served locations, would ease lower rents and reduce displacement.

“The reality is that the heart of displacement is a lack of housing, which pours lighter fluid on housing costs, puts huge pressure particularly on low-income tenants and pushes people out,” [Senator Scott Wiener] said. Research from the state’s nonpartisan Legislative Analyst’s Office and UC Berkeley has found that building any new housing, especially homes subsidized for low-income residents, prevents displacement at a regional level.

But low income renters–and, importantly, those who advocate on their behalf–weren’t buying it. Dillon says “there is a fundamental disconnect between the approach of the senator and his supporters on one side and influential anti-poverty organizations on the other.” Their fear was that new apartment construction would happen disproportionately or exclusively in lower income communities.  The Brookings Institution’s Jenny Schuetz boiled this down to a trenchant tweet:

Tricky politics. Past experience shows that wealthy white communities have been more successful blocking development in their neighborhoods, so not unreasonable that lower-income [people of color] worried they’ll bear the brunt. But building more housing is only long-term solution.

Never mind that this pretty much flies in the face of the logic of real estate development: given the choice to build apartments in a high income community or a low income community, developers will inevitably tend to gravitate toward the places where rents are higher so that they can earn a greater profit. The fact that high income communities have been so adept at zoning land for single family uses and so resistant to development proposals is the principal reason that demand has been diverted to lower income neighborhoods in the first place. A sweeping, statewide pre-emption of “local control” is the only thing that’s likely to open up the opportunity to develop in these higher income places.

Ultimately, this shows how deeply in-grained the notion of weaponizing development approvals is in the land use process. The argument seems to be that unless low income communities have the same power to exclude new development that wealthier communities routinely exercise, that this is inequitable. Low income housing advocates have used withholding development permission and regulating density to extract concessions from developers in the form of community benefit agreements or construction of or financial contributions for affordable housing. This exactly parallels the way in which higher income communities extract concessions in the form of land dedication, park construction, contributions for schools and local government and other amenities.

As long as we view planning and development approvals as devices for extracting concessions from developers on a case-by-case basis, we’ll inevitably circle back to a low-build, NIMBY-dominated world.

This is pretty much the problem that has plagued New York’s Mandatory Inclusionary Housing program. In theory, the city’s program requires developers to dedicate a portion of units in new apartment buildings for affordable housing, which should ease the city’s supply crunch and help reduce everyone’s rent. But in practice, the individual neighborhoods in which the up-zoned apartment buildings would be constructed oppose the additional density.  While the city-wide policy easily gained a majority of the City Council, the individual up-zoning approvals that would activate the “mandatory” portions of the law have run into difficulties. In the first two projects forwarded under the law–in Manhattan and Queens— strong neighborhood opposition has prompted the local city councilor to withdraw support for the needed zone change–effectively torpedoing the projects.

In many respects, this is a reprise of the drama that doomed Governor Jerry Brown’s 2016 proposal to exempt affordable housing construction from the state’s CEQA environmental impact review process. While that would have encouraged development, it also would have removed a valuable bargaining chip that local communities (and labor unions and environmental groups) used to extract concessions from developers. As long as development permission is organized around this highly transactional, brokered process, its unlikely that any group is going to cede its points of leverage. We’ll achieve equality by enabling all neighborhoods, rich and poor, to be empowered to say “not in my back yard.”

As we’ve pointed out before, there’s a particularly nasty version of the prisoner’s dilemma operating when it comes to liberalizing land use laws.  Individual communities and groups would be better off if everyone were open to allowing more housing everywhere. But they don’t trust that others won’t renege, and their community (or group) will be saddled with all the burden and impacts of additional density. As in the prisoner’s dilemma, everyone looks out for their own self-interest, which produces a result that is collectively worse for everyone. Like Sartre’s No Exit, it feels like the actors are caught in a hell of mutually conflicting objectives.

If there’s going to be a way to break this logjam, it’s probably going to have to look a lot like Senate Bill 827, a relatively simple, clear and unavoidable state pre-emption that applies with equal force to all communities, rich and poor. The trick will be getting everyone to agree that this is in our common interest.

Why doesn’t the federal government protect access to affordable housing the way it does access to TV?

A powerful federal agency can override local laws limiting access to TV. But housing? Nope.

Local control. It’s the bedrock principle of land use planning. Cities and neighborhoods should have absolute control over the kinds of buildings that get built in their community. We dare not let state, or especially the federal government interfere in these decisions.


Your affordable access to a TV signal is protected by a powerful federal agency that can override local laws. Your access to housing isn’t. (Photo: Wikipedia)

Measures–like California’s proposed SB 827–that would assert an overriding state interest in getting housing built so that everyone has the opportunity to live in a community, and so that housing is affordable, are regularly defeated because they would impinge on local control.

Even when the federal government has some overriding civil rights interest–like enforcing the half-century old Fair Housing Act–it can do so only through a cumbersome and uncertain legal process, and its efforts are often undercut by local governments who can’t effectively be compelled to allow affordable housing to be built where they don’t want it.

So imagine that there was a federal agency with sweeping powers to administratively invalidate local ordinances the interfered with people’s rights to get a vital service.

There is.

It’s the Federal Communication Commission and when it comes to getting affordable access to a TV signal, it’s powers are nearly omnipotent. Thanks to Communications Act of 1996 it has overriden local controls on TV antennas.  Case in point: The FCC took action to invalidate a Philadelphia ordinance generally prohibiting the attachment of satellite TV dish antennas to the front of buildings. The city was trying to reduce the blight from dishes being attached to building facades, by requiring that they be placed in less conspicuous locations if possible, and removed when no longer in use. Here’s how described the ruling:

The FCC ruled that the city ordinance interfered with the building owners (or the tenants) rights to get access to a satellite television signal. The commission adopted rules generally prohibiting local governments from limiting antenna installation and placement. The rules were adopted to achieve the Communication Act’s goal:

“to make available, so far as possible, to all the people of the United States . . . a rapid, efficient, nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges . . . .”

It’s fascinating to read the rationale the FCC used for striking down the ordinance. Philadelphia didn’t ban antennas, for example, the way cities routinely ban apartments. It only regulated the placement of dishes, and required their removal when no longer used. But the FCC found even these minimal requirements would drive up the cost and reduce the access to TV, and so were impermissible. The FCC judged that the requirements of the ordinance would “unreasonably increase the cost” of satellite service, and would have an adverse competitive effect on satellite TV compared to other sources of receiving television signals.

Procedurally, the FCC was able to take direct action to invalidate the ordinance, and the strength of the federal statute in its favor leaves little doubt as to the outcome of the proceeding. Remarkably, the FCC was authorized under federal law to strike down the ordinance before it had even taken effect: it essence, it didn’t wait for anyone to be harmed to rule that the ordinance was invalid and couldn’t be enforced.

This is a sharp contrast to the way fair housing laws work.  Even though its well understood that local zoning requirements have the effect of excluding entire classes of people from living in certain cities and neighborhoods, and that collectively the application of restrictive zoning in tight markets has the effect of reducing affordability–a point made by the President’s Council of Economic Advisers in 2015–no federal agency has comparable power to protect anyone’s right to housing. We’re trying to imagine, for example, a federal affordable housing commission ruling that a city’s ban on apartments, or its parking requirements limit individual rights, and restrict the housing choices of residents.

It speaks volumes about American priorities that the right to watch television is better protected than the right to housing. If a local government takes even a limited action to regulate TV antennas–in a way that only modestly and indirectly affects costs–the swift and certain power of the federal government stands in its way. If a local government flat out bans affordable housing, crickets.

Perhaps if the housing industry were as concentrated as television broadcasting, there’d be more political support for federal preemption of local ordinances. The cable television, satellite broadcasting and cellular telephone companies have all lobbied for extensive federal preemption of local regulations on antennas and other infrastructure.

Is Fruitvale gentrifying? Did it prevent displacement?

What does Fruitvale tell us about gentrification and displacement?

Gentrification solved, or at least prevented.

That was the celebratory headline announcing a recent study from UCLA’s Latino Politics and Policy Initiative, looking at changes in Oakland’s Fruitvale neighborhood. Fruitvale, a predominantly Latino neighborhood, the site of a transit-oriented development (TOD) at its BART rapid transit station. The report notes that the 47-unit TOD project included 10 units of affordable housing (more are planned), and that since 2000, the share of the neighborhood’s population that is Hispanic according to census data has remained essentially unchanged. The study, and the media reporting on it, are ready to call this a success story in preventing displacement.

The San Jose Mercury News lead with: “Development without gentrification? Oakland’s Fruitvale is the model, report says.”

CityLab‘s headline crowed:  “How Transit Oriented Development Can Prevent Displacement

The full study “Should I stay or should I go: How effective transit oriented development can lead to positive economic growth without displacing Latinos” makes the same argument:

This study found that the Fruitvale Village TOD increased the economic well-being of residents in the immediate neighborhood while preserving the area’s diverse racial/ethnic diversity.  . . . .

The Fruitvale census tract outperformed similar neighborhoods in the region and the state as measured by:

. . . reduction in residents without a GED/high school degree, increase in residents with B. A. completion, increase in the number of residents who own homes and increase in resident’s median household income.

So does Fruitvale’s Transit Oriented Development show a sure fire way to prevent gentrification? We’re not so sure. A closer look shows that the evidence of what happened is less clear and more complicated that suggested by these claims. It challenges us to be explicit about how we define gentrification, and to confront the serious limitations in trying to measure displacement with existing data. The data shows that the economics trends that produced higher rents and home values were felt almost exactly the same in neighborhoods that the study described as “gentrifying” and “non-gentrifying,” suggesting that larger regional forces are at work. And within the neighborhoods, it appears that expanded housing supply played a key role in minimizing measured demographic change.

What do we mean by gentrification?

Let’s take a closer look at this narrative of success.  Before we can determine whether a neighborhood has prevented or avoided gentrification, we have to have a clear definition of what the word gentrification means. If we mean rising housing costs that force people of limited means to sell, or become even more rent-burdened, then what’s happened in Fruitvale hardly looks like a cure for the economic effects of gentrification (more on that below). If by gentrification we mean, the overall racial/ethnic composition of the neighborhood changes very little, then at least on its face, the study makes a fair claim.

The “displacement prevented” conclusion in the UCLA study hinges on the very small overall change in the Latino share of population of Fruitvale between 2000 and 2015.  But the key word here is “overall.” What the data really can’t do is tell us much about who moved in and out of the neighborhood.  We can tell that the fraction of Latinos changed very little, but we don’t know whether low and moderate income Latinos were replaced by higher income or better educated Latinos.  That’s the assumption, but there’s simply no evidence either way, because the data (drawn from the American Community Survey) is really just a comparison of somewhat blurry, point-in-time snapshots, rather than a longitudinal tracking of individual people over time. To their credit, San Jose Mercury News acknowledged this challenge in their story:

Nor is it clear the existing residents are the ones benefiting from higher incomes and better educational attainment, and not new, wealthier residents with a similar demographic profile, who are displacing their low-income counterparts, said Robert Cervero, professor emeritus of city and regional planning at UC Berkeley.

Undoubtedly some of the long term residents of the neighborhood completed additional education and got better paying jobs, but it’s likely that much of the measured increase in both educational attainment and income has to do with new residents moving in having higher wages and more extensive education than those who moved out. But the trouble is ACS snapshot data can’t definitively answer that question.

A tale of two diverse neighborhoods:  Fruitvale and Uptwon

The core of the UCLA study is based on a comparison of two Oakland neighborhoods, Uptown and Fruitvale.  Uptown is a plurality African-American neighborhood just north of downtown Oakland, while Fruitvale is, as we’ve noted, a predominantly Latino neighborhood a couple of miles south of Oakland’s downtown.

Flickr: Eric Fredericks

According to the UCLA study, Fruitvale didn’t gentrify, but Uptown Oakland did. That conclusion seems to be based on the observation that the fraction of persons of color in Fruitvale remained basically unchanged, while the fraction of persons of color in Uptown declined. As the report says: “Between 2000 and 2015, Census Tract 4027 [Uptown] experienced a sharp decrease in their residents of color compared to the more muted changes experienced by the Fruitvale Village TOD.”  The white non-Hispanic share of the Uptown population increased from 3.7 percent to 27 percent; the white non-Hispanic share of the Fruitvale population decreased by four-tenths of one percentage point, from 11.9 percent to 11.5 percent.

Clearly, Uptown got “whiter” compared to Fruitvale. But in 2015, whether they are labeled as “gentrified” or not, both of these neighborhoods are extremely diverse. As measured by the racial/ethnic diversity index, Uptown is more diverse than 90 percent of all urban neighborhoods in the US, and Fruitvale is more diverse than 66 percent of all urban neighborhoods. If, as Ruth Glass defined gentrification when she coined the term in 1964, gentrification constitutes a neighborhood is invaded and newcomers move in “until all or most” of the previous occupants” are displaced, it’s far from clear that either of these neighborhoods is gentrified (as measured by race and ethnicity).

It’s also important to examine the population change in these neighborhoods in the context of the broader demographic trends in the Bay Area.  According to the Bay Area Equity Profile, compiled by PolicyLink from US census data, the black population of the Bay Area decreased by about 8 percent between 2000 and 2013, while the Latino population increased by 33 percent.  Given the region-wide decline in the black population, and the region-wide surge in Latinos, it is less remarkable that plurality black Uptown saw a decline in its population of color. The fact that Fruitvale’s Latino population share declined slightly at a time when the region’s Latino population increased by a third suggests that Fruitvale’s Latino population growth underperformed the regional trend.

Fruitvale home values went up just as much as in “gentrifying” Uptown

By most accounts, rising home values are a hallmark of gentrification. As home values and rents rise (and they tend to move in tandem as neighborhoods change), lower income families find it more difficult to afford housing in the neighborhood. Some families may be “forced” to move out by higher prices. (We put the word “forced’ in quotes, at least for homeowners, because higher prices also imply a big financial gain for those who sell their homes). The manner of how someone comes to leave their neighborhood is much debated, particularly because homeowners can experience big financial gains when prices rise. Renters who choose to stay in the neighborhood experience higher rents.

Let’s take a look at price trends in the two neighborhoods, based on Zillow’s estimates of housing prices for the the two zip codes that correspond most closely to Fruitvale (94601) and Uptown (94612).  The following chart shows home prices in the two neighborhoods indexed to year 2000 values (the base year of the UCLA study). For most of the past decade, price trends in the two neighborhoods are almost identical.  The housing bubble of the mid-aughts was more pronounced in Fruitvale, but since 2009, there’s virtually no difference in price trends between the two neighborhoods.

These data suggest that real estate market forces were very similar in these two places. In part, this reflects the regional nature of housing markets: the Bay Area is very hot, and housing prices are going up throughout the area. (Home prices have roughly doubled in the past five years). But in particular, since 2009, price trends in gentrifying Uptown and non-gentrifying Fruitvale have been indistinguishable. If there’s been a difference in the nature of population change between these two neighborhoods, it doesn’t appear to attributable to differences in housing cost inflation.

Housing supply, population growth and displacement

There’s one salient difference between the “gentrifying” Uptown neighborhood and the “non-gentrifying” Fruitvale neighborhood:  housing construction.  As a quick look at Census data for the two tracts shows that since 2000, 554 units of new housing have been built in Fruitvale (Tract 4061), and just 56 in Uptown (Tract 4027). The following table from Census Reporter shows the American Community Survey estimates of the number of housing units by the year built (estimates are followed by the survey’s reported margin of error).

The effect of these new units is reflected in the population counts for the two census tracts as well; Fruitvale’s tract 4061 saw a net gain of more than 500 residents since 2000, while Uptown’s tract 4027 experienced a decline in population of more than 250 residents.


Source: 2016 – American Community Survey, via Census Reporter; 2000 – Census 2000 via Brown University Long Term Database.

This data gives us one possible basis for explaining the relatively lack of racial/ethnic change in Fruitvale compared to the more significant racial and ethnic change in Uptown. Building more housing in Fruitvale may mean that fewer Latino families moved out. As we’ve reported at City Observatory, the larger studies of the Bay Area housing market (undertaken by the Legislative Analyst and Chapple and Zuk) find that there’s a negative correlation between the construction of additional market rate housing and measures of displacement: neighborhoods that build more housing have less displacement.  If Fruitvale has found an answer for gentrification (or at least its aggregate ethnic or cultural aspects), it may have done so by building housing–and not just the relative handful of affordable units, but by a much larger increase in the number of market rate units. Constricting the supply of housing tends to turn neighborhood change into a zero-sum game, where higher income households can outbid lower income households for the limited number of places to live. The key to avoiding displacement is building more housing.

If the Uptown/Fruitvale comparison has a lesson to teach us about displacement, it’s this:  If you you build more housing in a neighborhood, you can accomodate more people, and demographic change is likely to be slower. If you don’t build housing, you make neighborhood change a zero-sum game, and likely accelerate displacement. It’s also a reminder that housing markets are regional: rents and home prices rose by almost exactly the same amounts in both neighborhoods. Unless the entire Bay Area figures out a way to build more housing, the affordability problem is bound to worsen, with the greatest negative effects being felt by low income renters.

The takeways

The tale of two neighborhoods, Fruitvale and Uptown, sheds a useful light on the way we talk about gentrification, neighborhood change and housing affordability.

  • Just because the overall racial/ethnic composition of the neighborhood didn’t change much since 2000 doesn’t necessarily mean that there wasn’t considerable churn and displacement of previous lower income residents with newer higher income residents.
  • If you want to reduce displacement, build more housing. Neighborhoods that don’t expand their housing supply are more likely to experience displacement.
  • You can’t ignore the larger regional context: growing demand for urban living, coupled with a limited and slowly growing supply of housing in urban neighborhoods generates higher home values and rents throughout the region.



The Week Observed, May 18, 2018

What City Observatory did this week

California’s next step in fighting global warming is building more apartments near transit. California has been a leader in climate change policy, being one of the first states to execute a cap-and-trade system for carbon emissions. In a guest commentary for City Observatory, Environment California’s Dan Jacobson draws a sharp line connecting housing and climate issues. Transportation is now the largest source of carbon emissions in California (and in most cities). And transportation emissions are driven by sprawling development patterns. The most effective way to reduce driving and transportation emissions is to enable more people to live closer to the center of urban areas, in places that are, and can efficiently be served by transit. That makes it imperative from an environmental perspective that the Golden State adopt a measure along the lines of SB 827, which makes it much easier to build apartments in dense, transit served areas.

Must read

1. Michael Lewyn has come to the realization that when it comes to land use, the only solution will be radical–and not local. Writing at Planetizen, he observes that no amount of well-meaning neighborhood intent will overcome the strong incentives not to be the only neighborhood that allows more density or the construction of affordable housing. The only way to break up this game is for higher units of government to intervene and pre-empt the local veto. As we’ve pointed out at City Observatory, zoning is caught in a perpetual prisoner’s dilemma, where individual neighborhoods and cities have overpowering incentives to take actions (restricting housing) that collectively produce worse outcomes (shortages, higher housing costs).

2. Why most efforts to control traffic don’t work, and what we can do instead. In a commentary at Greater Greater Washington,  Bryan Barnet Woods examines our usual responses to traffic congestion. Cities try to minimize the local impact of traffic by limiting development and requiring parking. These measures actually increase car reliance, expand the scope of sprawl and generate more driving and congestion, which we end up trying to fix with added road capacity. We repeat this Sisyphean cycle and wonder why traffic doesn’t get better.  Instead, Woods argues, reducing congestion will require use to pursue four other strategies: Invest in more cycling, walking and transit infrastructure, price roadways, build dense, mixed-use transit served neighborhoods and prioritize people over vehicles. This is a nice, succinct statement of the nature of the urban transportation problem and the outlines of its solution.

3. A song about induced demand. (Actually, a must watch, rather than a must read). You can’t have a real protest movement without a great protest song.  And now Portland’s anti-freeway-widening movement has its protest song, courtesy of a local folk musician. At the May 9 City Council meeting, Paul Rippey signed up for public testimony, guitar in hand. He used his allotted three minutes to belt out a new composition that’s likely to be our theme song at City Observatory:  “The we need to understand is induced demand.”

Bike Portland‘s Jonanthan Maus got a copy of the complete lyrics, which include:

In the 60s we built the interstate. In the 70s and 80s they were working great.
In the 90s and aughts we said, “Well, let’s add another lane.” And, now by god, they want to do it again.
But it should be clear the system is broken and adding more lanes is just a futile token.

Because the thing we need to understand is induced demand.

OK, transportation advocates from other musical genres, the the musical ball is in your court.  Will someone please write a country/western ballad about being stuck on the Katy Freeway? Or get Don Shoup to rap about parking requirements?

In the news

Willamette Week quoted City Observatory’s Joe Cortright in an article on one candidate for Portland’s City Council reversing her position that the city ought to impose a moratorium on luxury housing.

The Week Observed, May 11, 2018

What City Observatory did this week

1. Cities as selection environments. It’s an article of faith in the economic development business that cheaper is better, or at least more competitive. The claim is that businesses will always gravitate toward and flourish in places with cheap rents, low wages, favorable taxation and generous subsidies. That’s always been debatable, but there’s more: as the old saying goes “Anything that doesn’t kill you makes you stronger.” So it is with what Michael Porter has called “selective factor disadvantages.” Sometimes it’s the case that being more expensive (or having limited resources) forces businesses to be innovate or become more productive to compensate. A lack of coal, for example, prompted Italian steelmakers to invent a highly efficient process for making steel from scrap in electric-fired mini-mills. That’s not to rationalize every cost, but it should counsel cities to recognize that some aspects of the local environment that seem less than hospitable may actually provide a strategic benefit.

2. Has Fruitvale figured out how to prevent gentrification and displacement? A few weeks back, a study caught our eye with the startling claim that “transit oriented development can prevent displacement.” The story was based on a recent UCLA study looking at demographic change in Oakland’s Fruitvale neighborhood. We took a closer look. The study notes that Fruitvale’s population remained majority Latino, while another Oakland neighborhood of color, Uptown, saw a decline in its African-American population and an increase in the white, non-Hispanic population. Does this mean Fruitvale avoided gentrification? Upon closer inspection, we don’t think so. While census data can tell us the overall demographics of the population, it doesn’t reflect whether residents from 2000 still live in the neighborhood. It’s also apparent that the economic forces behind neighborhood change are regional: home prices rose by almost exactly the same amount in “non-gentrifying” Fruitvale as in “gentrifying” Uptown, so in neither place were residents spared big rent increases. One key difference though: Fruitvale added significantly to its housing stock and population, while Uptown built only a handful of new homes and saw its population decline. Our takeaway: if you want to minimize displacement, build more housing.

Flickr: Erik Fisher

3. Why have we made it illegal to build the kind of neighborhoods Americans most love? We reprise one of our most insightful commentaries from our friend Robert Liberty.  He describes living in Northwest Portland, an old urbanist neighborhood with narrow streets, a mix of larger single family homes, duplexes and four-plexes, apartment courts and apartment blocks, as well as a neighborhoods shops and even some light industrial uses, all in a walkable gridded area. It’s one of Portland’s best loved and highest value neighborhoods, but it would be illegal to build today: in most places the streets have to be wider, residential uses have to be separated from commercial and industrial ones, and you can’t mix single family homes with apartments. Maybe it’s time to reconsider whether our land use laws are aligned with the kinds of urban environments we most value and enjoy.

Must read

1. How sweeping is your city’s apartment ban? Like most American cities, the vast majority of Seattle is zoned exclusively for single family structures. While the city is in the midst of a historic building boom, nearly all of the new construction is happening in the relatively few places it’s permissible to build multi-story apartments. Vast swaths of the city are effectively off limits to new development, with the result that housing supply is pinched, and prices (and rents) continue to rise. The Seattle Times’ Mike Rosenberg has an graphic analysis of Seattle’s single family zoning, and also estimates of the share of properties that are single family in major cities (this doesn’t appear to be the share of land, or necessarily what’s allowed under zoning; but it does emphasize the predominance of single family homes in most cities.

2.  Don’t obsess about green building; focus on green zoning. The always incisive Lloyd Alter has an excellent analysis of the environmental importance of achieving greater density. While we tend to fetishize building technology through flashy new technologies and LEED certification, what does the heavy lifting in energy conservation and greenhouse gas reduction is simply building more densely. There’s a strong correlation between greater residential densities and lower building and transportation emissions. Build as many LEED certified buildings as you like, if they’re built at low density, transportation emissions will overwhelm their ostensible energy and pollution savings.

3. Pedestrian deaths hit a 28-year high. A new report from the Insurance Institute for Highway Safety highlights a grim statistic: more than 6,000 pedestrians were killed on the nation’s streets in the past year, the highest number since 1990. The study highlights the growing number of Sport Utility Vehicles, and the particular danger of multi-lane arterials, where traffic speeds are lethal to pedestrians. Pedestrian deaths are up 46 percent since 2009, and although the report doesn’t mention it, that date corresponds to a trough in vehicle miles driven. Since 2014, declining gas prices have fueled additional driving, and a growing number of crashes. And pedestrians are bearing much of the cost.

In the news

1. CityLab republished our analysis of the failure of SB 827 “Will there be no exit from California’s housing hell?

2. So did Strong Towns: “No Exit from Housing Hell.”

The Week Observed, May 4, 2018

What City Observatory did this week

1. Why don’t we have a powerful federal agency who can pre-empt local laws that drive up housing costs? Last week, the Federal Communications Commission took action that invalidated a City Of Philadelphia ordinance that would have regulated the location of satellite antennas and required their removal once they were no longer used. The FCC ruled that Philadelphia’s ordinance might drive up costs and reduce access for TV subscriptions. That got us thinking: Why don’t we have a similarly powerful federal agency that could take a critical look at local land use requirements that drive up housing costs, and restrict access to housing? Apparently, it’s because our nation puts a higher priority on watching television than on housing people.

2. No exit from housing hell. Post-mortems of the defeat of California’s Senate Bill 827 (a measure that would have preemptively legalized apartments in areas with good transit service), highlight a schism between the economics and politics of upzoning.  While YIMBYs, economists and a wide range of urbanists support the measure, it foundered, both from the predictable opposition of cities and some homeowners, but also because of a lack of trust among the measure’s intended beneficiaires: low income renters.  In many respects, its because these groups cling to the highly transactional view of the land use planning process, implicitly acting as if low income communities can achieve equity only if they can be just as NIMBY as high income ones.

Must read

1. Parking craters, writ large. We’ve just finished another of Streetsblog’s annual “Parking Madness” competition, in which readers vote for the city that has the most egregious, life-sapping surface parking lots. (Congrats to Lansing, Michigan for bringing home the Golden Crater). But as we all know, the effects of a parking crater aren’t individual, they’re cumulative; it’s the profusion of surface parking lots that eats away at the fabric of urban vitality. A new set of maps from Reddit user “Afrofagne” shows how surface parking lots dominate parts of of the urban center of each of the nation’s 50 largest metro areas. Using Open Street Maps, they’ve highlighted the size and location of surface parking lots, and by using a common 5 kilometer (roughly 3 mile) square to depict each city, you get a sense of which places are most (and least) dominated by parking craters. By its nature, the maps rely on the completeness of the Open Street Maps database, which isn’t perfect (it appears that data peters out in some peripheral neighborhoods), but this is a useful picture of how parking truly dominates urban space in most cities.

2. Nine rules for better housing policy. The Brookings Institution’s Jenny Schuetz neatly summarizes the principles that should guide all policy-makers–federal, state and local–as they think about how to address housing. She’s boiled her arguments down to a series of do’s and don’ts, all of which are worth remembering. We especially like items four and five on the “do” list (let housing supply grow to meet demand, and reduce barriers to high-opportunity neighborhoods), and the second don’t “don’t reward homeowner’s over renters.”

3. How grocery stores reduce traffic. Nick Magrino on CityPages has a great story from the Twin Cities. Along with new apartment development in Minneapolis, there’s been a raft of new grocery stores opened in urban neighborhoods–Whole Foods, Target, Trader Joe’s and Aldi–as well as local operators. Magrino makes the point that the profusion of shopping opportunities close at hand means that city residents have shorter shopping trips and the opportunity to more easily bike or walk to the store, rather than to drive. This perspective turns the usual traffic engineering perspective on new commercial uses on its head: building a grocery stores is assumed to generate trips and traffic. It’s a paradox: each individual store can be thought of a generating its traffic, but the more stores there are for a given population, the likelier it is that they’ll be fewer (and shorter) car-based shopping trips.

New Knowledge

Using ‘R’ to get American Community Survey. OK, we’re going to get a bit wonky this week. If you want to take the measure of American cities or neighborhoods, the American Community Survey is your go to source of information. The Census Bureau’s standard American Fact Finder is a user-friendly, if workmanlike way to find your way to just the data you need. But if you’re doing large scale analysis, it’s a bit clunky and involves a lot of pointy-clicky. The go-to software package for large scale statistical analysis is R, which despite a daunting command-line interface, gives you extremely powerful tools for analyzing data. But how to get ACS data into the R for analysis? Well, as is often the case with great open source products, someone’s built exactly what’s needed.  In this case its Texas Christian University professor Kyle Walker who’s created a package called “tidycensus” which automatically extracts ACS data from the Census web server and ports it to an R data-frame for analysis. If you’re a regular user of ACS data, its well worth your time to learn to use this great–and free–tool.

In the news

1. The Sacramento Bee‘s Foon Rhee reported on Joe Cortright’s presentation to Sacramento’s Project Prosper meeting on April 26, including an analysis of Sacramento’s retention of college graduates.

2. The California Office of Planning and Research cited our commentary “Adding highway capacity is not a GHG reduction strategy,” in its CEQA Technical Adivsory on evaluating transportation impacts.


“Caveat Rentor” – beware of crazy rent statistics

The quality of rent data varies widely, beware of erratic data sources

Trying to measure average housing costs for neighborhoods across an entire city—let alone the whole country—is an incredibly ambitious task. Not only does it require a massive database of real estate listings, it requires making those listings somehow representative at the level of each neighborhood and city.

For a number of reasons, just taking the average of all the listings you can find is likely to produce extremely skewed results, with numbers much higher than true average home prices. For one, many apartments, especially on the lower end of the market, aren’t necessarily listed in places that are easy to find—or at all. Instead, landlords find tenants with a sign on a fence or streetlight pole, local (and not necessarily English-language) newspapers, or just word of mouth. On top of that, if you have two homes of similar quality but even slightly different prices, you would expect the cheaper one to rent or sell more quickly. As a result, it would spend less time listed than the more expensive home; any given sample of listings, then, would tend to over-represent those more expensive, harder-to-rent homes. (If this doesn’t make sense, read the “visitors to the mall” example here, explaining a similar statistical problem with attempts to measure prison recidivism.)

So we’re sympathetic to anyone taking on this challenge. But that doesn’t mean that organizations who take it on but fall short should be given a pass.

Take, for example, Zumper. Zumper is a  website that features rental listings in cities around the country. So far, so good. Zumper has also made a name for itself through its “National Rent Reports”—more or less monthly press releases that claim to track median rental prices around the country. These reports have received copious media coverage, from the Bay Area to Seattle to Nashville to Chicago to Boston to LA to Miami to Denver, and so on.

Some journalists apparently take Zumper’s reports at face value. For example, Wolf Richter of WolfStreet, spotted a “bubble” in apartment markets–based on a look at month over month changes in one bedroom apartment prices starting in late 2017. According to Zumper data, one bedroom rents surged, reaching double digit rates by February 2018, before falling back to less than two percent. According to Richter:

A peculiar phenomenon cropped up last November: The median asking rent for 1-BR apartments suddenly surged by the double-digits, even as the median asking rent for 2-BR apartments was barely edging up. This phenomenon endured for four months but has now collapsed (the phenomenon remains unexplained, though some suspects have been lined up):

But the real suspect here is the quality of Zumper’s data.  Not only is there no plausible reason why nationally, one bedroom rents would follow a suddenly different trajectory than two bedroom rents.  Averaged over millions of units nationally, there’s no reason why rents should move so abruptly if they’re correctly measured.  In addition, no other source has any corroborating increase in one bedroom rents during this time. For reference, Zillow‘s Rental Index shows a very steady rate of increase, with a value of less than 3 percent year over year through 2017 and 2018. Yardi‘s national average apartment rent didn’t change by more than $1 per month between July 2017 and March 2018. The real problem would seem to be Zumper’s methodology, which is severely affected by the composition of units listed for lease on its website. This composition effect, and not any change in market conditions appears to be influencing these results.

Unfortunately, Zumper’s reports also appear to be severely affected by the problems we listed above, and possibly others. We noticed this in Chicago. Back in August, 2015 Zumper’s National Rent Report declared that the median one-bedroom apartment in Chicago cost $1,920—a number that would raise eyebrows among anyone who has actually looked for one-bedroom apartments in that city. A cursory glance at Zumper’s neighborhood-level data reveals issues that should call the entire report into question. 

From Zumper's website.
From Zumper’s website.


“Median,” of course, means that half of Chicago’s one-bedroom apartments ought to cost more than $1,920, and half ought to cost less. But according to Zumper’s own data, just three of the city’s 77 neighborhoods had median one-bedroom rents of over $1,920. While apartments are definitely not distributed evenly over the city, so you wouldn’t necessarily expect an even split in terms of neighborhoods, it’s simply not plausible (or supported by, say, the Census) that half of the city’s apartments are in just three of its neighborhoods.

It seems more likely that half of Zumper’s listings are in just three of the city’s (wealthiest) neighborhoods. As of the writing of this article, Zumper claims to have over 4,000 apartments listed in the Near North Side—the most expensive part of the city—and just 11 in Jefferson Park, five in West Garfield Park, and zero in South Lawndale, three of the cheaper neighborhoods.

Nor does it appear that Chicago is the only city with this problem. In Los Angeles, it appears that about 25 neighborhoods have median rents above the supposed citywide median—and about 70 have ones below. In Philadelphia, Zumper’s map shows just 11 neighborhoods with median rental costs at or above the supposed citywide median, and over 40 below; the proportion is similar in San Diego. The skewed distribution of Zumper’s listings is also apparent in these cities: the relatively more expensive Philadelphia neighborhoods of Rittenhouse Square, Center City East, and University City have 99, 219, and 94 apartments listed, respectively, while the less-expensive communities of Elmwood, Kingsessing, and Mill Creek have 19, 25, and 8.

These comparisons likely understate how inaccurate Zumper’s numbers are. After all, if its listings skew towards the higher end of the market, they likely not only oversample wealthier neighborhoods, but also more expensive properties in those neighborhoods, meaning that the true median rent in each neighborhood, not just the city as a whole, is below what Zumper reports.

Comparing Zumper’s citywide medians to estimates from Zillow, which is generally regarded as one of the more accurate estimators of real estate prices, reveals a mixed bag. (We looked at numbers for September, 2015). In some cities, the two sources give roughly similar numbers: Zumper estimates the median listed one-bedroom apartment cost $2,110 in Washington, DC, versus Zillow’s estimate of $2,149; the estimates for Los Angeles are $1,830 and $1,850, respectively. But in many places, they’re quite different. In New York, it’s $3,160 versus $2,300; in Chicago, $1,920 and $1,550.

Zumper responded to our inquiries over Twitter and email. A spokesperson said that Zumper “stands firmly behind [its] rental data.” He added: “We have some of the strongest inventory from which to analyze…. We are reporting on true, asking rents seen in the market, and do not create an algorithm to estimate value.”

Of course, put another way, this is largely our point: Zumper takes the median from its listings, without compensating at all for the fact that its listings are disproportionately concentrated in higher-end neighborhoods. While it may be true that Zumper has a relatively large inventory of rental homes in its database, that’s akin to an online pollster saying that their polls must be accurate because they got so many votes. While quantity matters, at a certain point, quality—representativeness—matters much more.

On Twitter, Zumper’s CEO also told us that the National Rent Report focuses on the median apartment available for rent, and doesn’t claim to take into account apartments that are currently occupied. But as an explanation for Zumper’s concentration of listings in high-end neighborhoods, that doesn’t really pass the smell test: differences in housing turnover between wealthier and less-wealthy communities are several orders of magnitude too small to account for, say, the gap between the number of listings in the Near North Side and Jefferson Park. (Note that the Zillow estimates we described above are also for listed apartments.) Nor are claims that that gap is “in proportion to how many people move” to each of those neighborhoods plausible.

We should note that none of this is really a problem for Zumper’s main business, which is being a database for people looking for a place to rent. But it does mean that they should not be used as a reliable source for rental data, just as journalists shouldn’t report on real estate trends by simply adding up every listing on Craigslist.

Housing affordability issues are real, as we’ve written about here extensively, and the media absolutely should be reporting on home price trends, both locally and nationally. But precisely because these issues are so important, it’s crucial that the data that gets reported is reliable. Until it addresses the problems we’ve brought up here, Zumper’s rent reports are not, and journalists should be aware of that.


Why do we make it illegal to build the neighborhoods Americans love most?

Narrow streets, a mix of large houses and tiny apartments, interspersed with shops and businesses in close walking distance. It’s the most desirable neighborhood in the city, and we’ve made it illegal to build any more like it.

Editor’s note:  City Observatory originally published this commentary in 2015. Our friend Robert Liberty a keen observer of and advocate for cities, and the questions he posed then are still salient for urbanists.


by Robert Liberty

For many years I lived in Northwest Portland, Oregon.

It was a part of the city first settled by white pioneers in the 1860s, but development really took off when the streetcar arrived in the first half of the 1900s. (A century later, the old streetcar tracks had to be dug up so they could put down the new streetcar tracks.)

I first moved there in the 1980s by renting a part of a house. Then I moved a few blocks away into a courtyard apartment building of a type built all over the city in the 1940s. There were a dozen one and two-bedroom apartments on two floors around a small courtyard, built on a 15,000 square foot lot (about one-third of an acre, roughly the size of many suburban house lots). There were storage areas and a laundry room in the basement.

Next door to the west was a large single family house, built around World War I. To the south was a one-story three-plex: three tiny apartments slotted into a narrow strip between our building and a large old home.

Kitty-corner across the street was a small restaurant that served breakfast at a few booths and a counter. For a few years, every Saturday, a long black limousine with tinted windows would park near the restaurant and the chauffeur would deliver a hot breakfast to the occupant and then take away the dirty dishes. I never found out who was in the limousine.

Diagonally across the street to the northeast was a warehouse that processed large volumes of “direct mail”—i.e., spam.

Across the street to the north sat another Edwardian house used for offices, a bland three-plex built in the 1970s, and a four-plex that looked like a large single-family home in Dutch Colonial style. I lived in that four-plex happily for many years.

The rest of the street was a mix of large older homes on small lots and small apartment buildings. Both young families and older couples lived in the houses and apartments.

The street was shaded by big trees and it was usually very quiet. The street was so narrow that bigger cars had to queue to pass each other, partly because so many people parked their cars on the street since the apartment buildings provided few or no parking garage spaces.

At the other end of the block was a park that was also served as part of an elementary school’s grounds. The school was built of blond-colored brick and rose three stories. It’s locally famous as being on the migration path for Vaux’s Swifts. Early each fall thousands of the birds would swarm and then spiral down into the decommissioned smokestack of the school incinerator and boiler. Beside the school were some community tennis courts.

Not far from the school was a senior center and some subsidized housing for families of modest means. Scattered here and there in the nearby blocks were grand old houses—some beautifully maintained and very expensive, other cut up into legal and illegal apartments.

Three blocks away was an arterial street, but it wasn’t too much wider than the street in front of my apartment building. I often walked there to buy groceries from a small grocery store and drop off my dry cleaning. Another block or two farther along the arterial was a branch library. Across the street from the grocery store was a small sheet metal fabrication business.

Once, when I was explaining to a reporter how our neighborhood had every possible kind of use and service, I gestured to the sheet metal company to illustrate the presence of light industrial uses. It was then that I realized is was called Schmeer Sheet Metal Works and Fabrication. “See,” I said, “we have the whole schmeer.”

That neighborhood is typical of many older neighborhoods in American cities. And in almost all of American cities and suburbs, that neighborhood would be illegal.

It is illegal to build an apartment building in a district of single family homes. Residential zoning was adopted in order to prevent single family neighborhood property values and families from being degraded by the presence of apartments where immigrants and low-class people lived. (If you think this is an exaggeration read the early history of zoning including the various state and federal supreme court decisions upholding challenges to the constitutionality of residential zoning.)

Residential zoning today has carried class separation to great extremes, which you can see if you travel by air: Over here, big single-family homes on big lots. Over there a mobile home park. In another direction, a pod of apartment buildings. A place of every income, and every income in its (separate) place.

Some affluent cities use their power to regulate development to exclude entire categories of housing from within their border, like apartments and mobile homes.

Typical city zoning makes it illegal to build or operate a warehouse or a light industrial use next to homes and a grocery store. The separation of industrial and commercial uses from residential uses was the very foundation of zoning a century ago.

It is illegal in most cities to build apartment buildings without providing one or more parking spaces for every apartment. The same would be true of grocery stores or office buildings. The neighborhood’s grocery store has fewer than 20 parking spaces.

The street in my old neighborhood does not meet more current design requirements, because it is considered inappropriate to design a street so that car cannot pass each other at any time or location. The street is 27 feet wide, curb to curb. That includes parallel parking on both sides, leaving a travel lane about 12 feet wide. That violates the standards for a local road recommended by the American Association of State Highway and Transportation Officials.

In most cities, you cannot operate a business out of your home if you have employees or customers arriving from other locations.

In too many places, it is effectively illegal to build subsidized housing for families of modest means. Even when it might be legal, local officials can interpret nebulous phrases like “preserve neighborhood character” or complex regulations in way that such housing is never approved.

A senior center, even though it is not a business, would be treated like a commercial use that cannot be allowed next to single family homes.

The elementary school would probably be illegal too because the school property would be too small to meet many state’s standards. The school is located on about 9.8 acres but many of those acres are occupied by a park open to the public at all times. The school, which has 685 students, would require a site of 11.85 acres in California, Texas and Connecticut, 15 acres in New Mexico and 18-20 acres in suburban Pennsylvania.

And then there is the absence of parking places; according to Virginia’s 2010 school design standards, the school should provide parking for all the staff, visitors and about a third of the students. (Apparently the legal driving age in Virginia is much younger than in Oregon.)

Of course, a jumbled neighborhood like mine would probably be regarded by many residential realtors, local officials, and even prospective home purchasers as a bad investment. After all, it’s about as far from the suburban residential model as possible. But in fact, this neighborhood, while providing many apartments (formerly) affordable by lower-income renters, was and is highly sought after.  According to Zillow, homebuyers in this neighborhood pay more than twice as much per square foot to live here than they would in the region’s suburbs.

One reason the prices are so high is because the supply of this kind of neighborhood has been limited by zoning, parking regulations, street design standards, school design standards, and building codes. We need many more neighborhoods like this all across America, so that all of the increasing numbers of people who want to live in places like this can afford to live in them.

Does that mean do away with all regulations? No. But it does mean that we need to stop assuming that everyone wants to, or can afford to, live in a big-house on a big lot in a residential-only neighborhood.  We shouldn’t be making it illegal to build the kind of neighborhoods, like mine that are increasingly popular and in short supply.

An illegal neighborhood in NW Portland.

Robert Liberty has worked over the last 34 years as an attorney, elected official and university program administrator to help implement plans to create livable, sustainable and equitable cities and to conserve the rural lands and resources we need for food, fiber and wildlife.  He has called Portland home for almost half of a century.